United States v. Wells Fargo Bank, 485 U.S. 351 (1988)

United States v. Wells Fargo Bank

No. 86-1521

Argued December 8, 1987
Decided March 23, 1988
485 U.S. 351

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

CENTRAL DISTRICT OF CALIFORNIA

Syllabus

Under § 5(e) of the Housing Act of 1937, certain state and local public housing agency obligations, commonly termed "Project Notes," are "exempt from all taxation . . . imposed by the United States." It was generally assumed that this exemption applied only to the federal income tax until, in 1984, a Federal District Court ruled that Project Notes were also exempt from federal estate taxes. Shortly thereafter, Congress enacted the Deficit Reduction Act of 1984 (DEFRA), § 641 of which eliminated the purported exemption and foreclosed those who had already paid estate taxes on Project Notes from obtaining a refund thereon. After the Commissioner of Internal Revenue denied appellee executors such refunds, they filed suit in the District Court below, which concluded that their Project Notes were tax exempt when they filed their estate tax returns. The court also held that § 641 of the DEFRA unconstitutionally denied appellees due process and equal protection of the laws under the Fifth Amendment. The United States appealed directly to this Court under 28 U.S.C. § 1252.

Held:

1. Section 5(e) of the Housing Act does not exempt Project Notes from federal estate taxation. The settled presumption against implied tax exemptions applies here, particularly since 26 U.S.C. §§ 2001 and 2002 (1982 ed. and Supp. III), which define the taxable estate for estate tax calculation, by their terms include Project Notes. Moreover, an exemption of property from all taxation, such as that contained in § 5(e), has long been understood to apply only to direct taxes such as the federal income tax, and not to excise taxes such as the estate tax. The various aspects of the legislative history relied on by appellees as indicia of congressional intent are insufficient to demonstrate unambiguously that Project Notes are exempt from estate taxes.in contravention of the aforesaid presumption and the understood meaning of § 5(e). P. 359.

2. Resolution of the estate tax exemption question obviates the need for this Court to consider the constitutionality of § 641 of the DEFRA.

86-2 USTC ¶ 13,703, reversed.

BRENNAN, J., delivered the opinion of the Court, in which all other Members joined, except KENNEDY, J., who took no part in the consideration or decision of the case.